Life and general insurance companies have sought reduction in the Goods & Services Tax (GST) rate from the
GST Council. Citing low penetration of insurance in India, the companies through their industry bodies (Life Insurance Council and General Insurance Council) have sought a reduction in GST to 12 percent.
"The GST Council should reduce the tax rate to 12 percent in the first phase and then pare it down later to 5 percent. This is because insurance is an essential good and higher taxes lead to a higher premium," said the chief executive of a mid-sized life insurer.
The sigma report by global reinsurer Swiss Re released in July showed that the insurance penetration in India, as a percentage of the country's gross domestic product, was 3.7 percent in FY19 compared to 3.69 percent in FY18. The world average is 6.09 percent.
At present, insurance products including pure term, health as well as motor (except commercial vehicles' third party motor insurance with 12 percent GST) attracts 18 percent GST.
Unlike other markets, India does not have any social security schemes except the PM Jeevan Jyoti Bima Yojana (term insurance) and PM Suraksha Bima Yojana (accident insurance). PM Jan Arogya Yojana, offering Rs 5 lakh medical insurance per family, has also been launched. However, this is available only for those below a certain economic status. All these schemes are exempt from GST.
Even for crop insurance, which is exempt from GST, insurers said some taxes are being sought at the reinsurance level. This has led to higher provisioning in the crop insurance space, which is already loss-making due to the high claims ratio.
When GST is charged on insurance services, this is automatically added to the insurance premium as an additional tax. This leads to policy premiums going up and could be a de-motivator from buying insurance.
"The earlier service tax rate of 15 percent in the pre-GST era itself was a dampener. Now, customers renewing products have noticed that there has been a rise in premiums due to GST. This needs to be looked at," said the chief distribution officer at a large general insurer.
The insurance regulator is also in favour of a lower GST rate. IRDAI had earlier sent a representation asking for GST to be reduced for essential products like property/dwelling insurance in vulnerable areas (prone to catastrophes) to 12 percent.
A cut in the GST rate would immediately translate into lower insurance premium for customers. It is likely that this proposal will be taken for discussion in the GST Council meeting that is scheduled to be held in March next year.
Source: moneycontrol.com